Geoff Cook, chief executive, Jersey Finance

Regulatory tales of the unexpected

By Geoff Cook, chief executive, Jersey Finance – Strange happenings seem be going on across the pond. Like many in our industry I was puzzled by the news headlines last night on Standard Chartered bank, an institution I have always held in high regard and one which I felt had managed to hang on to the best of its heritage in terms of business conduct.

SCB have been accused in the most extraordinary and colourful language by the New York State regulator of  handling transactions linked to Iran in contravention of US laws. An extract from the regulators charge sheet follows:

"For almost ten years, SCB schemed with the Government of Iran and hid from regulators roughly 60,000 secret transactions, involving at least USD250 billion, and reaping SCB hundreds of millions of dollars in fees. SCB‟s actions left the US financial system vulnerable to terrorists, weapons dealers, drug kingpins and corrupt regimes, and deprived law enforcement investigators of crucial information used to track all manner of criminal activity."

This is a pretty extraordinary allegation and the initial temptation is to conclude yet another exemplar of good conduct appears to have failed to meet its own published commitment to high standards of business conduct. In these crazy times where allegations and accusations are thrown around and replayed through the media with no interrogation or testing, it is increasingly important to examine the motives even of regulators and governments. And when we do that in this instance  a line of enquiry turns up some interesting information which for me calls into question the whole motive and veracity of these charges.

Firstly lets examine who actually is bringing the charges.  Not the SEC, or the US Federal authorities, but a New York State Regulator, tackling an alleged infringement of a federal law. Namely one Benjamin M Lawsky, Superintendent of Financial Services, whose website you can view by clicking here.

Note Superintendet Lawskys objectives include: "keeping New York on the cutting edge as the financial capital of the world"

So the regulator is also the promoter? -  Given New York are still pretty sore that London overtook them post SARBOX as the financial services HQ of the world could there just be more to this than meets the eye?
If the bank had really dropped the ball we would have expected like HSBC a frank admittance of mistakes and an energetic commitment to put things right. This would be very much the style of SCB as compliance is in their DNA.

But instead the Bank has today strongly refuted the claims:

"The Group does not believe the order issued by the DFS presents a full and accurate picture of the facts.  The analysis, that the Group shared with all the US agencies, demonstrates that throughout the period the Group acted to comply, and overwhelmingly did comply, with US sanctions and the regulations relating to U-turn payments.  As we have disclosed to the authorities, well over 99.9% of the transactions relating to Iran complied with the U-turn regulations.  The total value of transactions which did not follow the U-turn was under USD14m.

“The Group believes that the interpretation reflected in the DFS’ order, of the U-Turn exemption — a federal regulation administered and enforced by federal authorities — is incorrect as a matter of law.  The Group’s review of its Iranian payments also did not identify a single payment on behalf of any party that was designated at the time by the US Government as a terrorist entity or organisation."

This all has an uncomfortable feel about it. A young up and coming lawyer with political experience (former Chief of Staff to State Governor Cuomo) may be with future political aspirations? Bashing banks is what could be described as a target rich environment;the banking industry has made a lot of mistakes, and needs to and has acknowledged the case for change. Nonetheless the opportunity to gather some impactful headlines may be very tempting, but unless based on sound and accurate information, will harm the reputation of the targeted institution, damage its investors interests, (usually pension funds or private individuals), and discredit in this case a regulatory authority which seems bent on  maximising publicity through the use of inflammatory language. The US has a reputation for tough justice, almost 2.4m people are behind bars, that's 1 in 100 of the population. It would be an injustice if the land of the free which tolerates lax domestic AML regulation and anonymous corporates through Delaware, Nevada and Arizona were to bear down on a 'foreign' institution and hold it to account for failing to meet a standard that it does not demand from  its own domestic  institutions.


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